This week, JLF’s Jordan Roberts published a research brief on the potential for self-insured employers to increase price transparency in health care. According to Roberts:
As of 2018, 55.1 percent of Americans had employer-sponsored coverage. Yet, these employers and employees have had to grapple with rising health care costs year after year… Sixty-one percent of individuals with employer-sponsored coverage are enrolled in a self-insured plan. Self-insured plans are well suited to use different tools to cut costs.
One-way employers have attempted to rein in costs is by self-insuring their health care plans.
How Does Self-Insurance Work?
Instead of paying premiums to a health insurance provider every month for a health care plan, self-insured employers set aside the money they would have paid in premiums to pay directly for their employees’ health care. Self-insured companies pay a third-party administrator to process health claims, but the employer pays out-of-pocket for these health claims instead of the insurance company. This means employers, like traditional insurance companies, can retain the savings if medical claims are low, but it also means they are on the hook if medical claims are high. For that reason, many companies have less expensive stop-loss insurance which protects companies from especially high medical claims any given year. Stop-loss insurance helps employers by covering medical expenses after they reach a certain threshold to protect them from large losses.
How Could This Increase Price Transparency?
Because self-insured companies pay the medical claims, they retain the data. There is no better example of this fact then when the Employer’s Forum of Indiana pulled together their self-insuring employers and commissioned a study of hospital prices. Roberts quotes a recent article in Health Affairs:
This study, published in September 2017, was the first to publicly report relative hospital prices by hospital name. It found that, across 120 Indiana hospitals, prices negotiated for employers in Indiana averaged 272 percent of what Medicare would have paid for the exact same services at the same hospitals over the period 2013–16.
Self-insured employers are the owner of their claims data. They pay an insurance company to complete claims, but all of the data should belong to the employer to monitor cost variation and tie overall costs to health outcomes. The authors go on to describe how more price transparency among providers can help employers take back control of their plans:
“The pricing information generated from these studies gave self-insured employers unprecedented insight into the actual contracting outcomes between their carriers and hospitals. Since Medicare prices have already been adjusted for geographic variations in the standard of living, employers can compare the relative prices with local, regional, and national relative price benchmarks and monitor the trends over time. These insights allow employers to assess whether their negotiated prices are reasonable and how effectively their insurance carriers negotiated with providers, which further empower employers to apply downward pressure on their insurance carriers to negotiate more effectively.”
When employers have information about how much they are paying, they can take measures to decrease those costs, like contracting with a direct primary care provider or promoting the use of telemedicine, both of which can push down costs and increase access for their employees.